Credit deflation and the reflation cycle to come (part 2)

[Democorruptcy]

There might be a bit of deflation in the bookmaker head offices at 4:30pm

Quote

All eyes are on Musselburgh and the third leg of a gambled-on big-priced treble after the first two won to leave bookmakers facing potentially significant payouts

The final leg of the treble is the Daragh Bourke-trained Gallahers Cross in the concluding 2m6f handicap hurdle (4.25) at Musselburgh. The eight-year-old opened at as big as 40-1 with some firms but is now as short as 8-13 to pick up a first win for his trainer.

Blowing Dixie landed the second leg of a gambled-on big-priced treble with a comprehensive success in the 1m4f handicap at Southwell.

Trained and owned by Iain Jardine, Blowing Dixie was sent off the 4-6 favourite having opened at 9-1 on Saturday.

That victory came after Fire Away landed the first leg of the gamble in the opening 2m4½f novice handicap chase at Musselburgh.

Fire Away was a general 22-1 when markets opened on Saturday, but was soon trimmed into 6-4 before being sent off the even money favourite at Musselburgh.

BetVictor head of trading Chris Poole said before racing: "We've taken a lot of multiple bets on three horses, all at very big prices and all at roughly the same time last night.

"That's our worst nightmare because there's nothing we can do about these liabilities.  We're stuck with it and we'll lose quite a lot of money. I can't go into figures."

Paddy Power spokesman Paul Binfield added: "It's fair to say we do have some liabilities and they're not inconsiderable."

On his first start for trainer Laura Morgan having left Bourke earlier this month, the eight-year-old Fire Away obliged by 19 lengths.

Morgan said: "We've only had the horse for 11 days, having bought him from Daragh Bourke. He had a couple of horses for sale and I bought him.

"I did actually go to buy the other lad, but we bought him instead. I definitely got a good buy and fingers crossed, he'll win a few more.

"I got told there was big money coming from Ireland, but I wouldn't have a clue to be honest. One of my bumper horses got smashed here and he got stuffed."

At the request of the BHA's integrity department, the connections of Fire Away were interviewed by the raceday stewards before the race.

They were asked to provide information regarding the selection of the race, their expectations for Sunday, and the riding instructions given. Their comments were noted.

Last horse got beat.

[BurntBread]

What's the feeling here about satellite constellations (like Starlink) undermining the value of more traditional telco operators like BT & VOD?

I see that, as of this week, Musk's Starlink has ten thousand users in the US, at $99 per month; has permission to expand this to one million, and is seeking to extend this permission to 5 million. Those are currently tiny numbers, and the service is relatively expensive for a mass-appeal product. However, according to Wikipedia, in 2017 they were projecting revenues of $30 billion by 2025. I guess even if fees fall to $300 per user per annum, to become competitive with cellular broadband, that is still only 100 million customers, compared to a few billion people with cellphones.

Also in the wikipedia article is a mention that Samsung made a proposal in 2015 for a 4600 satellite network with enough capacity to provide 200Gb/month to 5 billion people, so these type of satellite systems sound like they have the technical capacity to eat more than a chunk of the cellular broadband market.

The satellites are not going to be direct to cellphones, so I guess even in the worst case, VOD still has a business model. Is this going to be another case where Starlink reduces the incentive to invest in terrestrial networks, and so the current incumbents clean up in a gradually declining market, as there is less competition? I'm thinking of DB's famous examples of whale oil and big tobacco. Or, am I reading this wrongly, and satellites are a serious risk to the telcoms infrastructure sector?

[Hunty]

6 hours ago, Yadda yadda yadda said:

How up-to-date is the data on BP shorts? Could be that they have been closing them since the results.

Friday Short Link

Dropped off a lot Friday.

Earlier in the week volumes were double. Possible shakeout.

Good for averaging down though.

[Hancock]

Some bloke called Anna-Marie who wears a red dress, from the ruling junta makes putting up peoples fuel/energy bills and decimating oil/gas jobs her priority.

https://www.telegraph.co.uk/business/2021/02/07/switch-away-oil-gas-top-to-do-list-says-anne-marie-trevelyan/

 

[Loki]

1 minute ago, Hancock said:

Some bloke called Anna-Marie who wears a red dress, from the ruling junta makes putting up peoples fuel/energy bills and decimating oil/gas jobs her priority.

https://www.telegraph.co.uk/business/2021/02/07/switch-away-oil-gas-top-to-do-list-says-anne-marie-trevelyan/

 

 

Fake News mate. I've been reliably informed by the climate change/Greta threads that energy prices won't go up and I'm an idiot. 

[AWW]

It's hilarious that she genuinely thinks she can make that happen using willpower and speeches.

[Hancock]

1 minute ago, AWW said:

It's hilarious that she genuinely thinks she can make that happen using willpower and speeches.

Its a bloke, but he and Boris can certainly come up with policy to end jobs and make bills more expensive.

The only problem is most the rest of the world couldn't care less about such bollocks, and will use whatever fuel is cheapest.

[Castlevania]

Sell all your oil shares the Observer has spoken.

https://www.theguardian.com/business/2021/feb/07/massive-losses-should-be-a-warning-to-big-oil-that-its-bonanza-is-over

Strange article that seems to ignore heating our homes.

[JMD]

1 hour ago, sancho panza said:

I'm on shoft for a couple of nights but that'll be one to watch when I get time.75% top to bottom in S&P would be within historical norms in terms of P/E multiples.This has en end of cycle feel to it much like 1929.We didn't realy get the credit deflation in 00 due to it mainly being stock market that caught the cold.

Perhaps also don't forget to watch the Real Vision Lyn Alden/Hugh Hendry video (sorry can't attach link at moment, but easy to google) - you posted recently the Twitter spat between them, and the video shows further what a total arse Hendry is (not that I had any dought about that aspect!!). Hendry's exasperated view was that Alden's ideas added little of consequence to what's looming ahead of us, perhaps he is right there(?), though rather tellingly Hendry doesnt offer any counter narrative himself.                                                                                                                                                                                              ...Hendry states that no longer running a hedge fund allows him to think more clearly, but in this (and other videos) I notice he seems to always start complaining of tiredness or headaches... I shan't dwell on the man's obvious problems, but me thinks the man 'is not well in himself'?!? (nb The bit at end where he mentions having to stop interview to dash off to airport (where he will probably get into arguments with authorities) to fly to London, to buy a Christmas tree is priceless).

[Loki]

20 minutes ago, Castlevania said:

Sell all your oil shares the Observer has spoken.

https://www.theguardian.com/business/2021/feb/07/massive-losses-should-be-a-warning-to-big-oil-that-its-bonanza-is-over

Strange article that seems to ignore heating our homes.

"big oil"

They always neglect to mention "Big Gov" behind the green agenda though

Just another Guardian hate-read for me. 

Quote

For further proof, if it were needed, that the low-carbon race is advancing apace, turn your attention to the US comedy star Will Ferrell. 

 

[JMD]

26 minutes ago, AWW said:

It's hilarious that she genuinely thinks she can make that happen using willpower and speeches.

Hate to say it, but wasn't that how lockdown across the West was achieved? ...Well perhaps not the willpower bit, but alarmist diatribes and a few iffy stats seemed to do the trick.

[Loki]

8 minutes ago, JMD said:

Hate to say it, but wasn't that how lockdown across the West was achieved? ...Well perhaps not the willpower bit, but alarmist diatribes and a few iffy stats seemed to do the trick.

You can't magic up energy like you can compliance though, and the two are quite correlated 

[Yadda yadda yadda]

14 minutes ago, Vendetta said:

I was going to pose the same question?

What will be the impact of Musks STARLINK satellite system on the business models and share price of established telcos like Vodaphone and BT ?

No need to try to get fibre broadband to every remote hamlet if starlink can supply them albeit at a price.

[NogintheNog]

45 minutes ago, Castlevania said:

Sell all your oil shares the Observer has spoken.

https://www.theguardian.com/business/2021/feb/07/massive-losses-should-be-a-warning-to-big-oil-that-its-bonanza-is-over

Strange article that seems to ignore heating our homes.

Yes, how many GWhrs would be needed to be added to the Grid to heat homes in Britain instead of Gas??? A total BS article Still, cant complain it'll keep the shares down a bit longer!

Quote

A green transport future is arriving faster than even the most optimistic environmentalists had hoped, and fossil fuel executives had feared.

The real trick to guarding against the risky future for fossil fuel production is to stop producing fossil fuels  

Managers have a choice: they can view the 2020 collapse as an unprecedented event in the history of the industry, or a grim foreshadowing of its value in a world that no longer needs fossil fuels. Both are valid viewpoints, of course. But unless oil companies prepare today for a greener future, they face an indefinite number of dire financial years.

Yeah, like all my friends have got electric cars now, I feel so yesterday NOT! (None of them have by the way...)

A world that no longer needs fossil fuels??? Pretty well everything we buy from the far East was probably produced from Coal fired power generation.

More mainstream media journo crap!!

[dgul]

1 hour ago, BurntBread said:

What's the feeling here about satellite constellations (like Starlink) undermining the value of more traditional telco operators like BT & VOD?

I see that, as of this week, Musk's Starlink has ten thousand users in the US, at $99 per month; has permission to expand this to one million, and is seeking to extend this permission to 5 million. Those are currently tiny numbers, and the service is relatively expensive for a mass-appeal product. However, according to Wikipedia, in 2017 they were projecting revenues of $30 billion by 2025. I guess even if fees fall to $300 per user per annum, to become competitive with cellular broadband, that is still only 100 million customers, compared to a few billion people with cellphones.

Also in the wikipedia article is a mention that Samsung made a proposal in 2015 for a 4600 satellite network with enough capacity to provide 200Gb/month to 5 billion people, so these type of satellite systems sound like they have the technical capacity to eat more than a chunk of the cellular broadband market.

The satellites are not going to be direct to cellphones, so I guess even in the worst case, VOD still has a business model. Is this going to be another case where Starlink reduces the incentive to invest in terrestrial networks, and so the current incumbents clean up in a gradually declining market, as there is less competition? I'm thinking of DB's famous examples of whale oil and big tobacco. Or, am I reading this wrongly, and satellites are a serious risk to the telcoms infrastructure sector?

Each Starlink satellite has a total bandwidth of about 20Gbps.  Sure, there'll be 12,000 satellites (or whatever), but the Earth has an area of 500 million km2, so, allowing for the fact that Starlink doesn't cover very northern or southern latitudes, that's going to be about 30,000km2 per satellite, or an area the size of Wales.  Wales has an internet peak bandwidth of about a Tbps, so while Starlink might help isolated houses, it isn't going to replace internet infrastructure for most people, and that's for today's internet usage -- it'll presumably only get greater, whereas Starlink is expensive to scale.

This can be quite nicely compared with 5G, which is about 20Gbps per cell -- given the massive numbers of cells in a city (for eg) compared with Starlink's 20Gbps to cover an area including several cities, it is clear to me that 5G is the greater threat to wired internet, not Starlink.

[in reality the satellites have overlapping beam footprints (each beam footprint covers a greater area than 30,000km2), but the sums still work out as '20gbps per 30,000km2 area' -- there's only so much bandwidth]

[Hancock]

41 minutes ago, Loki said:

You can't magic up energy like you can compliance though, and the two are quite correlated 

No but we can pay more for our energy, and common sense nations who aren't so easily brainwashed such as China can pay less.

[Seacrest]

Brent is up 59% since October , Baker hughes rig count is at half in 12 months, a world population shackled to their homes for the best part of 12 months...  would be interested to hear how those on a crusade feel that gap gets filled .    

[arrow]

There may be a number of reasons why BP and to a lesser extent RDSB share price are still quite low compared to other oilies. I think one of them is that investors want exposure to a pure oil/gas play such as xom. Also, Xom/chevron appear to be able to handle their debt better. So some investors are either investing more in pure oil/gas or changing their holdings to them. There are also the institutions and pension funds who have publicly said they're selling out of these companies. This also draws in short sellers.

I think it's a mistake to sell out of either BP or RDSB, unless you believe a BK is imminent. I have a spread of oilies and am quite happy with having most of them as oil inventories are drawing down, supplies won't keep up with demand.

This article says that oil is getting bullish. No surprise there, as now the US congress, senate and President are Democrats, trillions in stimulus has been approved, with trillions more coming, approved by the Fed. Combined with the lifting of politically motivated lockdowns, it's going to give a major boost to the US economy and oil.

From the wsj,

"Tightening Oil Supplies Inject New Momentum Into Price Rally

Signs of strength under the surface of the energy market suggest further gains for crude prices, some investors and analysts say

Brent-crude futures, the benchmark in energy markets, have risen more than 50% since the end of October.

A booming rally in oil markets has pushed crude prices to their highest levels since near the start of the coronavirus pandemic, powered by production curbs and recovering demand.

Brent-crude futures, the benchmark in energy markets, have risen more than 50% since the end of October and are approaching $60 a barrel for the first time since Covid-19 began to erode oil demand in early 2020. Futures for West Texas Intermediate—or WTI, the main grade of U.S. crude—last week surpassed $55 a barrel for the first time in over a year.

The speed of the recovery has surprised some investors and analysts, given that coronavirus continues to curtail demand. It has juiced shares of companies including Exxon Mobil Corp. and ConocoPhillips after a troubled 2020 for oil-and-gas producers, making energy stocks the best performers on the S&P 500 this year.

“The market definitely has some momentum,” said John Kilduff, partner at Again Capital LLC, a hedge fund that invests in energy derivatives. “WTI is going to be targeting $60, too.”

Oil is rising against a mixed economic backdrop, with data published Friday suggesting that the labor market faces a long road to recovery. But the stock market continues to power higher, in part because investors expect a new dose of fiscal stimulus and vaccines to goose growth.

Behind oil’s rally: Huge stockpiles that accumulated in the early stages of the pandemic have winnowed down faster than many people expected. Traders say that could pave the way for further price gains if demand, which has already recovered in China and India, picks up in developed economies.

The fall in inventories is largely down to efforts by the Organization of the Petroleum Exporting Countries and its allies, led by Russia, to restrain production. Since agreeing to the cuts at the peak of the crisis in energy markets in April, producers have held back a cumulative 2.1 billion barrels of oil, OPEC said last week.

U.S. companies have also helped to prevent production from swamping demand. Global appetite for oil remains below pre-pandemic levels despite a pickup in consumption of gasoline, naphtha and fuel oil, which is used to heat homes and power ships.

American producers are pumping 17% less crude than they did on the eve of the pandemic, according to the Energy Information Administration.

All this has pulled the amount of crude oil and petroleum products stored around the world down by about 5% since its peak in 2020, according to Morgan Stanley analyst Martijn Rats.

There is no shortage of oil, but one sign the market is tightening stems from the relationship between current and future prices. Spot prices have climbed to a premium over prices for crude to be delivered down the line, showing that traders are willing to pay more for immediate access to oil.

On Friday, WTI contracts for oil that will be delivered next month cost $5.16 more per barrel than contracts for crude that will change hands in March 2022. That is the biggest premium for front-month futures since the start of the pandemic and contrasts with a historically large discount last April, when a glut of oil pushed WTI prices below zero.

“It is a bullish indicator,” said Scott Shelton, an energy analyst and broker at United ICAP. “I don’t think there’s any question about that.”

Analysts say this dynamic—known as backwardation—has been exaggerated by a slowdown in purchases of long-dated energy contracts by airlines and other companies that buy them to hedge fuel prices.

Still, some investors say the condition shows the rally has further to run. It gives traders an incentive to take oil out of storage, because they earn more from selling it straight away. That in turn would bolster prices by whittling down supplies. Lower forward prices also make it harder for producers to lock in profits for barrels they will sell in the future, encouraging them to keep oil in the ground.

Backwardation could encourage more money managers to bet on crude, said Mark Hume, co-manager of BlackRock’s BGF World Energy fund. When spot barrels of oil fetch a premium, funds earn a profit when futures approach expiration and they flip their position forward into cheaper later-dated contracts.

The chance to capture this extra return has drawn investor money into commodity markets in recent months, adding to existing bullishness about raw materials, according to Ruhani Aggarwal, an analyst at JPMorgan Chase & Co.

Still, some analysts think investors are overly optimistic, saying the oil market faces hurdles including the potential for an increase in Iranian exports. Plus, new coronavirus variants could lead to further restrictions on movement.

“Just when we’re ready to say we’re over with the virus, the virus isn’t over with us,” said Helima Croft, global head of commodity strategy at RBC Capital Markets.
 

[Noallegiance]

As DB has repeatedly pointed out, the concentrated hatred for a particular industry is a lovely bottom-picking bull market indicator.

And we all know the government is full of shit and fucks everything up, so I'll gamble on oil companies being fine.

[TNS]

The more hate stories i see, the more i think it's time to buy more!

[arrow]

 

 

After the comments about BP, I thought this interesting about oil companies trying to change to "energy" companies with renewable assets. Total appears to be going at great speed towards this transition. Much faster than BP. BP appears slow and sedate by comparison with Looney saying they must get 8-10% returns from any renewable project before they'll commit to it. Even though BP is looking to cut hydrocarbon production by 40% over, I think 10 years, it still excludes its Rosneft stake and appears to be going at a sensible pace. Or, perhaps Total is quicker to pounce upon cash starved projects. Repsol is also spending big, but DB may be able to give more detail about that.

From spglobal

"Total SE has pulled ahead of the competition in reinventing itself as a broader energy company, deepening its push into renewable energy by buying up companies and assets at a much faster pace than any of its peers in the oil and gas industry.

The company struck a $2.5 billion deal this month to buy a minority stake in Adani Green Energy Ltd., the listed solar power producer controlled by Indian tycoon Gautam Adani. The transaction, which also gives Total a 50% stake in Adani's roughly 3.4 GW of installed solar power plants, was the latest in a string of deals that has put the French group at the forefront of the oil industry's drive to diversify portfolios.

Over the past 12 months, Total has announced at least nine acquisitions in the renewable energy and power sectors, almost as many as its five largest European rivals combined, according to an S&P Global Market Intelligence analysis.

While Total has long been more acquisitive than others when it comes to decarbonization, 2020 marked an acceleration for the company. Along with many other majors, Total recently announced targets to lower its emissions and broaden its business, setting a goal to develop 35 GW of renewables capacity by 2025 and direct 20% of its spending to low-carbon electricity by the end of the decade.

"We are not there, in the low-carbon world, in electricity, to make some light diversification," Philippe Sauquet, president of Total's gas, renewables and power business, said in an interview. "It's really a gigantic move. If you want to do that in accordance with the growth of the market, or even go quicker ... we couldn't limit ourselves to organic growth."

Although none of its recent deals were on the scale of the one with Adani, the company's buying spree has given it a foothold in a wide range of industries across power and renewables.

Since the start of 2020, Total's acquisitions have ranged from offshore wind and solar projects to gas-fired power plants and even retail utility businesses. On top of that, the company signed deals in adjacent sectors, such as electric vehicle charging and biogas production, and it launched joint ventures to develop green hydrogen and battery storage projects.

"This is the kind of broad-based, diversified approach that all these companies are taking — simply because they need to do everything to get to net zero," said Pavel Molchanov, an analyst at Raymond James. "It's an 'all of the above' solution."

Top of the list

Still, Total is the most aggressive of the six supermajors when it comes to pivoting its business to low-carbon alternatives, Molchanov said. Figures compiled by Raymond James show that the company spent an estimated 15% of its capital expenditure on renewables and other clean technologies in 2020, roughly double and triple of what Royal Dutch Shell PLC and BP PLC spent, respectively.

"It's a short list, but Total is at the top of that list," Molchanov said.

All six companies still spend the vast majority of their money on their traditional businesses in oil and gas. Shell and BP have also played down the role of further large-scale M&A in their diversification, saying recently that they prefer to build out their development pipelines through existing platforms, such as Lightsource BP Renewable Energy Investments Ltd.

While the other European majors have made fewer renewables acquisitions than Total over the past 12 months, they have still announced new projects and joint ventures, secured auction awards and snapped up development pipelines.

Among the larger deals were Eni SpA's acquisition of a 20% stake in the Dogger Bank A and B offshore wind project in the U.K. from utility SSE PLC and Norwegian state-owned oil company Equinor ASA. And BP shelled out $1.1 billion to become a partner in Equinor's two planned wind farms off the U.S. East Coast, the Empire Wind and Beacon Wind projects.

Relative to their size, the smaller majors are also moving aggressively. Spain's Repsol SA is pouring about a quarter of its capex into green energy, while Eni and Equinor are not far behind Total in terms of shifting their investments, according to Raymond James.

For Total, the latest moves build on a decade of engagement in clean energy, starting with its acquisition of U.S.-based solar-panel maker SunPower Corp. in 2011. Five years later, Total bought and delisted Saft Groupe SA, a French maker of electric batteries.

The pandemic and oil price crash of 2020 might have brought a halt to that expansion. But, like the rest of the European majors, Total decided to stick with its decarbonization drive even while cutting capex in the rest of the business. In September 2020, the company said it would build 35 GW of wind and solar plants by 2025, up from a previous goal of 25 GW.

"We didn't compromise on our objectives. On the contrary, we found nice opportunities to make some acquisitions at much lower prices," Sauquet said, granting that the dynamic could continue. "It's clear that some small companies are lacking cash, and yes, there is a very strong likelihood that there will be companies willing to sell," he said.

Despite a tough year in the oil patch, the company has ample room to keep going. Jakub Zasada, an analyst at Fitch Ratings, said Total has significant flexibility in its capex plan and projected leverage for the coming years is within the guidance for the company's credit rating.

"They have the headroom necessary to make some additional investments," Zasada said, adding that he expects that all of the majors will need to keep acquiring assets to reach their targets. Still, during its strategic presentation in 2020, Total surprised the analyst with the number of projects it is already involved in.

"It seems that they are quite serious about reaching this target, and reaching it sooner rather than later," he said."

[mcdongle]

Hedge funds getting back into oil??

 

https://www.marketscreener.com/quote/stock/BP-PLC-9590188/news/Hedge-funds-bet-on-oil-s-big-comeback-after-pandemic-hobbles-producers-32380588/

[sleepwello'nights]

5 hours ago, Castlevania said:

Sell all your oil shares the Observer has spoken.

https://www.theguardian.com/business/2021/feb/07/massive-losses-should-be-a-warning-to-big-oil-that-its-bonanza-is-over

Strange article that seems to ignore heating our homes.

And fuel prices have been increasing at the fuel station pumps for the last few weeks. 

[DurhamBorn]

1 minute ago, sleepwello'nights said:

And fuel prices have been increasing at the fuel station pumps for the last few weeks. 

It will be interesting to see if in the budget we get loads of bull about climate etc and then tax increases.Fuel tax increases would rip apart the Tories i expect.The new red wall MPs will know their seats could go as quick as they came.Council tax and fuel tax are hated by lower wage people and rightly so.

[sleepwello'nights]

1 minute ago, DurhamBorn said:

It will be interesting to see if in the budget we get loads of bull about climate etc and then tax increases.Fuel tax increases would rip apart the Tories i expect.The new red wall MPs will know their seats could go as quick as they came.Council tax and fuel tax are hated by lower wage people and rightly so.

I bet you're right. Johnson is clueless, he has no overriding political conviction at all. Just short term expedient measures. The only promise he has kept is to take us out of the EU. And I guess the only reason he kept to that is because if he didn't the opportunities his political life give him would vanish along with his future prospects. 

I wonder whether labour would have been any worse. What am I saying of course they would be.